Staying on Course
2011 was a strong year for our company. Despite a volatile economic environment, demand for our products remained healthy. We stayed on course and managed to convert that demand into robust financial results by focusing our time, efforts, and resources on the extraordinary opportunities for Coca-Cola FEMSA and FEMSA Comercio. Moreover, following last year's smooth exchange of our beer business for a 20% economic interest in Heineken, we continue to benefit from
the promising long-term growth prospects of the global brewing space.

Business Highlights, Results
Let me now briefly review some of the year's highlights for our non-alcoholic beverage and retail businesses.

Coca-Cola FEMSA
In the face of a challenging commodity cost environment and global market volatility, Coca-Cola FEMSA's balanced portfolio of franchise territories across Latin America delivered double-digit top- and bottom-line growth. During the year, we increased our market share throughout almost every franchise territory and generated growth across our sparkling and still beverage categories.

We leveraged our financial and operating flexibility to firmly advance on our strategy to grow through accretive and acquisitions—from our incursion into the dairy category thromergersugh our joint acquisition of Grupo Industrias Lácteas in Panama, together with our partner, The Coca-Cola Company, to our mergers with the beverage divisions of Grupo Tampico, Grupo CIMSA, and Grupo Fomento Queretano in Mexico. The aggregate value of these transactions is more than Ps. 28 billion, which represents the most significant investment for our company since our acquisition of Panamerican Beverages Inc. (Panamco) in 2003.

In March 2011, together with our partner, The Coca-Cola Company, we successfully closed the acquisition of Grupo Industrias Lácteas, a leading company with a more than 50-year tradition in the Panamanian dairy and juice-based beverage categories. This transaction, which marked our first foray into dairy products, began an exciting learning experience into marketing, selling, and distributing dairy and value-added dairy products—one of the most dynamic segments in terms of both volume and value in the global non-alcoholic beverage industry. Moreover, this transaction presented us with the opportunity to develop the capabilities to manage a cold distribution system and expand our horizons to other high-value-added segments.

In Mexico, we moved more rapidly than ever to reach—in less than six months—merger agreements with three of the most prominent and respected, family-owned Coca-Cola bottling operations, creating an even larger and stronger beverage company. In October 2011, we successfully completed our merger with Grupo Tampico's beverage division, one of the oldest private bottlers in Mexico. In December 2011, we successfully closed our merger with the strategically contiguous Grupo CIMSA, one of Mexico's largest private
Coca-Cola bottlers. Furthermore, in December 2011, we reached an agreement to integrate Grupo Fomento Queretano's beverage division, another important family-owned beverage player in Mexico, which represents another key geographic link for our organization. As a result of these mergers, we will increase our Mexican operations' volume, revenue, and EBITDA by approximately 30%. In the process, we will achieve an unmatched leadership position in the Mexican Coca-Cola bottling system—one of the largest sources of value in the global beverage industry.

Through these mergers, we are privileged to enrich our organization with the track record, talented team of professionals, and entrepreneurial legacy of three of Mexico's most esteemed family-owned Coca-Cola bottlers, with whom we share an aligned vision of economic and social value creation. We are now one stronger family that looks to the future with optimism. Together, we will capitalize on the important growth prospects that we envision for our industry, our franchise territories, and the ample opportunities to exchange best practices and market and commercial experience—generating greater value for our new combined entity.

Beyond our considerable merger and acquisition activity, in 2011, we continued to evolve from a volume-driven to a value-driven commercial model to pursue the full potential of the non-alcoholic beverage industry. Indeed, since 2010, we have converted close to 90% of our volume to our new Gestión de Valor del Cliente (GVC or Client Value Management) commercial model. This model segments our customers in the traditional sales channel into three distinct clusters—gold, silver, and bronze—based on their potential to generate value for themselves, our company, and the industry as a whole. Through this tool, we gain the flexibility to allocate our marketing resources more efficiently and effectively, capture additional industry revenues, improve the performance of our customers in the traditional sales channel, and lay the cornerstone for our business' future organic growth.

2011 marked a historic year for Coca-Cola FEMSA. For the year, our total revenues rose 20.5% to Ps. 124.715 billion. Our gross profit grew 19.4% to Ps. 57.227 billion, resulting in a gross margin of 45.9% of total revenues. Additionally, our income from operations increased 18.0%, while our operating margin remained stable at 16.2% of total revenues.

FEMSA Comercio
In 2011, FEMSA Comercio's top-line growth resulted from our continuing store expansion and our comparable same-store sales growth. For the year, our same-store sales grew 9.2%, which was ahead of the trend, reinforcing our position as an industry benchmark. Our progress in mapping and understanding consumers' needs and adjusting our value proposition to better fulfill those needs significantly contributed to our same-store sales. Moreover, we achieved a healthy balance between store traffic and average customer ticket, which improved 4.6% and 4.3% for the year.

Our stores' performance also benefited from the closer logistics support offered by our addition of one new distribution center in the Valley of Mexico, and the expansion of the one in Monterrey. The growth in our distribution centers brings them nearer to our stores, enabling us to increase the frequency of our centers' store visits and the quantity and variety of SKUs available. This, in turn, drives greater sales growth by allowing us to enhance our product offerings to stimulate and satisfy our consumers' needs, without expanding the size of the store.

In addition to our expanded distribution network, we invested in extensive information management systems to optimize our supply chain management. Through our robust information technology platform, detailed processes, and logistics expertise, we manage the complex variables required to run an efficient supply chain profitably. As a result, we are increasingly able to forecast demand patterns for our product categories, significantly improve product availability, minimize stock-outs, increase inventory turnover, achieve high levels of service, and, ultimately, meet the needs of more than 8 million consumers daily

Building on OXXO's leadership position as Mexico's unique national modern convenience store chain, we opened a record 1,135 new stores for a total of 9,561 stores nationwide. We also expanded our store openings to new non-traditional locations, including shopping malls and airports, where we now operate small, high-traffic stores. Given the relatively low penetration of the OXXO format across the vast majority of Mexico, we will continue our aggressive domestic store expansion, while we test the OXXO platform outside of the country. To this end, we are not only incrementally expanding our network of stores in Bogota, Colombia, but also in the final stages of fine-tuning our value proposition to satisfy local market needs.

In Mexico, a key to our success is our capability to identify sites and launch new OXXO stores quickly, successfully, and profitably. We utilize proprietary models that enable us to pinpoint proper store locations, formats, and product categories. Using location-specific demographic data and our extensive knowledge of similar locations, these models allow us to tailor the store's layout, along with its product and service offerings, to suit the target market. Even as the number of our convenience stores climbs, we continue to hone our processes. Consequently, the success rate of our new OXXO store openings remains at an all-time high. Additionally, we expect to continue experimenting and testing other small-box store formats under the FEMSA Comercio umbrella.

FEMSA Comercio generated excellent results again this year. In 2011, our total revenues rose 19.0% to Ps. 74.112 billion. Our gross profit grew 21.1% to Ps. 25.476 billion, resulting in a 60 basis point gross margin expansion to 34.4% of total revenues. Additionally, our income from operations increased 20.7%, while our operating margin remained stable at 8.5% of total revenues.

FEMSA
Overall, FEMSA delivered compelling results for our shareholders in 2011. For the full year, our comparable total revenues rose 19.6% to Ps. 203.044 billion (US$ 14.554 billion), and our comparable income from operations grew 19.4% to Ps. 26.904 billion (US$ 1.928 billion). Our net income from continuing operations increased 15.2% to Ps. 20.684 billion (US$ 1.483 billion), while our earnings per unit were Ps. 4.23 (US$ 3.03 per ADR).

With the creation of shareholder value as a key long-term objective, we are encouraged to see that—as the execution of our strategy has generated strong operational and financial results—our performance is being recognized over time and this has been reflected accordingly in the ultimate measure of economic value creation for a corporation: the performance of our shares. Today, FEMSA's market capitalization is commensurate with its role as a leading enterprise not just in Mexico but across Latin America. Moreover, consistent with our growing financial flexibility, so too has grown our ability to return cash to our shareholders in the form of incremental dividends. During 2012, we intend to pay in ordinary dividends an amount representing almost four times the amount we paid in 2009.

Corporate Citizenship
At FEMSA, we are dedicated to our talented team of employees, who are the foundation for our past, present, and future success. We are committed to the personal and professional development of quality people at all levels of our organization. We offer proprietary training programs and tools to advance the capabilities of all of our people. For example, in 2011, approximately 78,854 employees took a course through FEMSA University, our integrated professional development and personalized training platform. We also foster the cross-fertilization and growth of our company's shared pool of knowledge and skills through the exchange of our executives among our international operations network.

Recognizing that people are at the heart of successful companies, I want to take a moment to mourn the passing of a great friend, colleague, and excellent human being, Alexis Rovzar de la Torre, who served as a member of the Boards of Directors of FEMSA and Coca-Cola FEMSA. For more than 30 years, Alexis contributed his talent, leadership, and counsel to help build the company that we are today. Beyond his many professional accomplishments, he was always dedicated and committed to many worthy charitable and non-profit causes. Indeed, he was a benchmark for many on how to nurture a family based on love and devotion. The exemplary way he lived his life will long endure among us.

As we continue with the development of our core businesses, we remain committed to sound corporate governance practices. We comply with all applicable legal standards—including those set forth in the Mexican Securities Market Law and the relevant provisions for foreign issuers in the U.S. Sarbanes-Oxley Act— and pursue a culture of transparency, accountability, and integrity.

Looking Forward
Staying on Course, we are extremely well positioned to keep concentrating our efforts on Coca-Cola FEMSA and FEMSA Comercio. We will continue to work closely with The Coca-Cola Company to pursue further consolidation opportunities for Coca-Cola FEMSA, building on our capability set and taking advantage of the business' proven track record of growth. As a leading bottler in the global Coca-Cola bottling system, we also look to continue to expand our non-alcoholic beverage business, maintaining our disciplined, efficient efforts to grow both organically and through targeted transactions that generate value for our stakeholders. We will further continue to emphasize and focus on the extraordinary growth potential of our OXXO convenience store chain, strengthening our business platform and further developing the capabilities that we need to operate at the forefront of the industry.

We envision an immensely rewarding future for our company, driven by our passionate team of managers and employees. On behalf of these more than 177,470 dedicated men and women across FEMSA, we thank you for your continued support. The very reason for our existence is to create economic and social value for our stakeholders—including our employees, our consumers, our shareholders, and the enterprises and institutions within our society—now and into the future.



José Antonio Fernández Carbajal chairman of the board and chief executive officer